Meyers v. Moody

• Decision Date: 29 May 1979
• Docket Number: CA-3-7625-D.,No. CA-3-5678-D,CA-3-5678-D
• Parties: David C. MEYERS et al., Plaintiffs, v. Shearn MOODY, Jr., et al., Defendants. and Bernard HAINES et al., Plaintiffs, v. Shearn MOODY, Jr., et al., Defendants. and Charles H. PAYNE, Receiver, v. Shearn MOODY, Jr.
• Court: U.S. District Court — Northern District of Texas

475 F. Supp. 232

David C. MEYERS et al., Plaintiffs, v. Shearn MOODY, Jr., et al., Defendants. and Bernard HAINES et al., Plaintiffs, v. Shearn MOODY, Jr., et al., Defendants. and Charles H. PAYNE, Receiver, v. Shearn MOODY, Jr.

Nos. CA-3-5678-D, CA-3-7625-D.

United States District Court, N. D. Texas, Dallas Division.

May 29, 1979.

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William Emerson Wright, Houston, Tex., for plaintiffs.

Dean Carlton, Dallas, Tex., for defendants.

MEMORANDUM OPINION AND ORDER

ROBERT M. HILL, District Judge.

The Defendant's Motion for Judgment on the Verdict; in the Alternative, for Judgment N.O.V.; and in the Further Alternative, for a Partial New Trial and for Dismissal for Failure to State a Claim Upon Which Relief Can Be Granted came on for consideration before the court, the Honorable Robert M. Hill, United States District Judge. The court has considered the motion and is of the opinion that the motion should be denied.

I. Damages

Defendant Shearn Moody, Jr.'s (Moody) primary attack upon the jury's verdict in this case, camouflaged among some 82 alleged grounds of error, centers on its findings of damages. The jury found that five million dollars would compensate Empire Life Insurance Company of America (Empire) for damages caused by the depletion of its stockholders' capital and surplus proximately caused by Moody's negligent mismanagement, breach of fiduciary duty and violations of federal securities law. Court's Charge to the Jury (Charge), Question No. 10. It further found that Moody should pay one million dollars in punitive damages as a result of his intentional misconduct and gross negligence in managing Empire. Charge, Question No. 12. The court instructed the jury that, in determining Empire's damages, it should only consider "the amount of impairment at the time of Receivership, if any, to the corporation consisting of the loss of capital and paid in surplus." Charge, at 21. Moody essentially contends that the court did not instruct the jury as to the correct measure of damages, and that the plaintiff, Empire's receiver (Receiver), did not present sufficient evidence to support an award of damages.

Waiver

At the outset, the court must determine whether Moody has waived his objections to the jury's verdict on damages for purposes of his motions for judgment n. o. v. and for a partial new trial. F.R.Civ.P. 50(a) requires that a motion for a directed verdict state the specific grounds therefor. Further, a party may not assert a ground in a motion for judgment notwithstanding the verdict that was not included in the motion for a directed verdict. 9 Wright & Miller, Federal Practice and Procedure, § 2537 at 598; Sulmeyer v. Coca Cola Co., 515 F.2d 835, 846 (5th Cir. 1975). Moody did assert in his motion for a directed verdict that Empire's insolvency is not the proper measure of its damages. (T. 1416). He did not, however, specifically contend that measurement of Empire's damages as of the time of the Alabama receivership adjudication was incorrect. Furthermore, he did not specifically contend as the ground for Receiver's failure to introduce sufficient evidence of damages the reliance of its expert witnesses upon an incorrect accounting method. (T. 1414-16). Therefore, he may not allege these grounds in a motion for judgment notwithstanding the verdict.

Federal Rules of Civil Procedure 46 and 51 govern whether Moody may present in a motion for new trial his objections to the jury's verdict on damages. These rules require that a party specifically and timely object to the introduction of evidence or to an instruction to the jury, and give specific grounds therefor, in order to preserve such objection for a motion for new trial. See Patton v. Archer, 590 F.2d 1319 (5th Cir. 1979); Jamison Co. v. Westvaco Corp., 526 F.2d 922 (5th Cir. 1976); 9 Wright & Miller, Federal Practice and Procedure, § 2472. Since Moody did not object at trial to Receiver's expert testimony on damages on the specific ground that it was based upon improper accounting principles, he has waived any objection to the admission of such testimony. Moody did object to the submission to the jury of question 10 concerning damages on the ground that insufficient evidence supported its submission. (T. 2399). He also objected to the measure of damages set forth in question 10 on the ground that damages should be measured as of the time of each wrongful act alleged. (T. 2403). Accordingly, Moody may assert as grounds for new trial that plaintiff did not present evidence of sufficient weight to support the jury's finding of damages and that question 10 stated an improper measure of damages.

Measure of Damages

Receiver is entitled to recover on behalf of Empire compensation for losses proximately caused to the company by Moody's negligence and breach of fiduciary duty. See Home Telephone Co. v. Darley, 355 F.Supp. 992 (N.D.Miss.1973), aff'd per curiam, 489 F.2d 1403 (5th Cir. 1974); Hux v. Butler, 339 F.2d 696, 701 (6th Cir. 1964); 19 C.J.S. Corporations § 833d. Receiver may also recover on behalf of Empire damages proximately caused to it by Moody's violations of Rule 10b-5. Moody v. Bache & Co., Inc., 570 F.2d 523, 527 (5th Cir. 1978); Herpich v. Wallace, 430 F.2d 792, 810 (5th Cir. 1970). This much is clear. What is not clear is how to measure the loss to Empire. Neither Texas law nor federal securities law provides a clear guideline, so this court must fashion a measure of damages which comports with the sparce precedent available and which is just. See Spiegel v. Beacon Participations, 297 Mass. 398, 8 N.E.2d 895, 909 (1937). There being no indication otherwise, the court presumes that the measure of damages for Receiver's common law and securities law claims does not differ under state and federal law. Cf. Pappas v. Moss, 303 F.Supp. 1257, 1281 (D.N.J. 1969).

In Commonwealth of Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216, 233 (1942), the Texas Supreme Court indicated that corporate loss may be measured in terms of loss of value or physical damage to corporate assets, restraints upon the marketability of corporate assets, and interference with the development of corporate properties. The Supreme Judicial Court of Massachusetts in Spiegel v. Beacon Participations, 297 Mass. 398, 8 N.E.2d 895, 909-911 (1937) assessed the damage caused to a corporation by an improper series of transactions according to loss in value of corporate assets. In Spiegel, certain directors of defendant Beacon Participations, an investment company, authorized the investment of corporate funds in a joint venture with an investment company owned by two directors of Beacon Participations. The trial court found the responsible directors of Beacon Participations "grossly negligent" and in breach of their fiduciary duty to the company in authorizing this transaction because they did not require a capital investment or other security from the company's joint venturer and thus put Beacon Participations' capital at risk for the benefit of the joint venturer and not for the benefit of the company. The venture suffered losses in excess of $60,000. Since the responsible directors' wrongdoing consisted in the very entering of the joint venture and not in the particular transactions conducted by the venture, the court approved a rule of damages assessing the responsible directors for one-half the losses sustained by the joint venture as a result of transactions entered into while they remained directors. The court ruled that damages should be measured "according to general principles of gain and loss" as of the date of the final hearing to determine damages. Spiegel, supra, 8 N.E.2d at 911. Thus, the value of the stock remaining in the hands of the joint venture, sums realized from the sale of such stock, and contributions by the joint venturer were to be taken into account in calculating losses.

In Insuranshares Corp. v. Northern Fiscal Corp., 42 F.Supp. 126 (E.D.Pa.1941), a federal district court also analyzed damages caused to a corporation by a wrongful series of transactions according to loss in value of corporate assets. In that case the controlling shareholders of an investment corporation were found liable for turning over control of the corporation to persons who looted the assets of the company through a series of fraudulent transactions and who, in turn, transferred control of the corporation to another person, who looted the corporation further. The Insuranshares court interpreted the "orthodox rule" of damages formulated in Spiegel to be the "difference in dollars between the assets of the plaintiff before the acts complained of and those found remaining at the time of suit" and applied a variant of that rule. The court varied from the Spiegel measure of damages in assessing damages as of the time of suit according to the loss in value of corporate assets caused by the defendant's wrongdoing less the increase in value of corporate assets also attributable to defendant's wrongdoing.

The measure of damages instructed to the jury in this case logically follows the formulations in Spiegel and Insuranshares. "The amount of impairment at the time of Receivership, if any, to the corporation consisting of the loss of capital and paid in surplus" proximately caused by the acquisition program negligently and fraudulently engineered by Moody takes into consideration the losses and gains in value of Empire's assets caused by Moody's wrongdoing and the increases and decreases in corporate liabilities caused by his wrongdoing. It measures loss according to general principles of gain and loss.

The measure of damages instructed to the jury differs from that employed in Spiegel and Insuranshares in that gains and losses are valued as of the time of the receivership adjudication. Spiegel applied a true rescissory measure of damages in determining loss as of the time of the hearing to...